Interpretación constitucional

The Chinese government controls the legality of domestic timber. Most stakeholders will comment that the Chinese laws are reasonably appropriate and adequately enforced. Documentation at district levels of source of origin of Chinese timber still poses some difficulties for some manufacturers, and manufacturers complain of the complexities and extra cost of implementing the extra due diligence requirements. How- ever, more than 1,400 Chinese manufacturers now have Chain of Custody (CoC) certification, including a large number of pulp and paper mills, furniture manufacturers, and panel producers.

Perhaps one of the largest and most difficult stumbling blocks to verifying the legality of Chinese domestic production will be underlying irregularities in land allocation processes

5.3.1 Verified Legal or Certified Supply of Domestic Timber

In China there are 4 licenses in place to ensure timber legality: certificates of forest tenure, logging licenses, transport licenses, and processing licenses. As a part of 5-year development planning, the SFA prepares a 5- year logging quota. After approved by the State council, the SFA allocates quota for each province and key forest bureau, then from provincial level to county or town level. Logging licenses are issues based on log- ging quota by the forestry authorities at local level.

Transport licenses are required for transportation of timber from forest to other places. There are check- points established on the way from forests to the places like market places or sawmills. Normally transport licenses are issued by the forestry authorities at or above county level. However, for the timber which comes from key forest areas, the licenses must be issued by the SFA.

Any company or individual want to do wood business, either processing or selling, must obtain a processing license from the forestry authority where the business is going to operate.

Third-party verification systems of legality, however, have developed rapidly since 2004. There are 3 forest certification/verification schemes or systems operating in China: FSC, PEFC, the Chinese national scheme CFCC. In addition, a project to develop a Chinese national timber legality verification system is also under- way:

FSC: By the end of June 2010, a total of 1.3 million ha of forests have been certified by FSC, most located in

Northeast state-owned forest regions. The FSC China National Initiative was launched in March 2006 to de- velop forest certification standards compatible to forest conditions in China.

Chain-of-Custody (CoC) certification has grown even faster. According to the FSC, there are nearly 1,300 FSC CoC certified manufacturers in China, including a large number of pulp and paper mills, furniture manufac- turers, and panel producers.

The FSC standard has received the highest level of international assistance to develop:

 WWF’s China Forest Trade Network works closely with industry on sourcing of FSC certified timber  The Forest Trust (TFT) has been actively working with Chinese wood products exporters to clean up

their supply chain. With the guidance provided by TFT, in June 2010, a Chinese plywood manufac- turer received FSC VLO certification from SmartWood, a part of Rainforest Alliance, the first ever in China.

PEFC: PEFC has also been active in promoting forest certification in China since 2007, when PEFC China Ini- tiative started in Beijing. Although there is no PEFC certification for forest management, by August 2010, 97 Chinese mills have been certified by PEFC CoC – with 72% (70) of these PEFC certificates issued to the mills in the paper sector, including paper trading and printing firms.

CFCC: In October 2007, China issued its own forest certification standards, followed by a number of pilot projects to test such standards. While there are no CFCC certified forests to date, the State Forest Admini- stration (SFA) aims to have the CFCC to be open to all international systems, with mutual recognition with PEFC and FSC, etc.

Chinese National Timber Legality Verification system: The project on developing Chinese National Timber Legality Verification system was launched in December 2009 with the help of DFID, connecting China with UK and EU experience. It aims to develop a cost efficient legality verification system which is adapted to Chinese context, and could possibly develop to endorse wood products labelled under robust legality or certification standards from other importing countries, e.g. license issued by Indonesian Timber legality As- surance System (TLAS), VPA licenses, FSC certificates of forest certification or timber legality verification. Certification bodies active include SGS, which has been involved in COC certification of Chinese wood- processing mills with imported timber for either FSC or PEFC, and FSC-certification for Forest Management, RA/Smartwood, a key FSC-certifier in China and the issuer of the first FSC VLO certification to a Chinese ply- wood mill, Institute for Marketecology, IMO, accredited by FSC for both Forest Management and Chain-of- Custody. In September 2009, SFA established Zhonglin Tianhe (Beijing) Forest Certification Center as the first “legal” certification body in the country accredited by Certification and Accreditation Administration of China (CNCA) to carry out forest certification in China.

Unfortunately, to date, the certification standards themselves as hesitant to give estimates of the total sup- ply of certified timber produced, and limit themselves to publication of number of hectares certified and number of chain of custody certificates awarded. Trade associations do not generally account for volumes of certified or verified legal wood produced and traded. While 1.3 million ha are FSC certified, much of this land is categorized as protected or conservation forests with annual allowable cuts (timber production lev- els) relatively low.

The number of companies having CoC certifications is relatively small compared to the size of the industry. Perhaps more importantly, many of those companies, while having the ability to do so, do not actually proc- ess much certified wood materials.

5.3.2 Irregularities in Land Allocation Processes

The Chinese central government in recent years has enacted several measures to advance rural develop- ment and forest restoration by strengthen the land rights of communities and households, including farm- ers’ rights to the nation’s forest lands. This reform also allows households to transfer their land rights to others, including outside investors, as long as the process is voluntary and no one involved has a conflict-of- interest. However, these measures are often not implemented adequately at district levels, as shown by a recent study by the Rights and Resources Initiative (see Box 1).

Box 1: Stora Enso in China, October 2010

Stora Enso, one of the world’s largest and “greenest” paper companies, was shown in a recent paper by the Rights and Resources Initiative (RRI), had many irregularities in the way that the company gained control over approxi- mately 22,000 hectares for a eucalyptus plantation in the Guangxi Autonomous Region of southern China. The RRI study was commissioned in 2009, when farmers’ protests against the Stora Enso land acquisitions in Hepu ended in violence.

To acquire land required for the plantation, 70% of the land transactions were conducted through the local gov- ernment company—created for the sole purpose of acquiring land for Stora Enso—and 20% through multiple middlemen. The remaining 10% of the transactions were carried out directly between Stora Enso and the admin- istrative entities of local collectives.

Middlemen, acting on behalf of Finnish paper and pulp manufacturer Stora Enso, often violated existing laws, and at times used physical threats on farmers who balked at signing over their rights. The use of a local government company also brings to bear the question whether negotiations were free of duress. The experience of the farm- ers of Hepu County in the Guangxi Autonomous Region, as recorded in the study, suggests that booming global demand for agriculture, forest products and bio-energy may well endanger the success of the Chinese govern-

Source: Adapted from Rights and Resources Initiative press release, October 2010.

5.3.3 Verified Legal or Certified Supply of Imported Forest Products

There are serious concerns about the rapid decline of natural forests in many of the countries that source forest products to China, and their ability to supply products in the future, both for local needs and export. In several countries, such as Russia, Laos, Thailand, Papua New Guinea, Malaysia, Indonesia and several Afri- can countries, there is evidence to suggest that large quantities of illegally-sourced forest products are head- ing for China. Arguments that the international community cannot confirm the true extent of illegal logging has now been surpassed: it is no longer a question of legal vs. illegal wood, or low-risk vs. high-risk, it is a question of documented versus un-documented (sourcing or legality). Even low-risk countries (US, Canada) may now need to show documentation they have never had to before.

Although main voices from different stakeholders indicate that it’s time for the Chinese central government to engage in this issue in ways similar to the EU or the US with their public procurement policies and/or leg- islation requiring due care/diligence in the sourcing of legal materials, many in the Chinese government ex- press concerns over possible sovereignty issues, with the role of third-party verifies (required by major mar- kets) in potential conflict with the role of producer country government agencies. China’s State Forest Ad- ministration is developing a Timber Legality Verification System, and it remains to be seen whether this sys- tem will be accepted by the major markets.

For Chinese companies importing timber, they must have import rights. Then it must provide relevant documentation including customs declaration form, contract, commercial invoices, Bill of Lading, packing list, certificate of origin, and certificate of plant quarantine. However, no information on the legality of tim- ber is required or associated with any of these documents. Official or systematic mechanisms to ensure that imported timber meets requirements for legality in the forest and supply chain control up to the point of import do not exist, although a number of independent certification schemes which offer chain of custody certification (as explained above) do exist.

Only 8% of the world’s globally traded wood products are certified (FAO 2009). Unfortunately, only back of the envelop calculations can be made for the likelihood that China’s major wood sources are verified legal or certified sustainable. As seen above, the certification standards are able to publish the number of hec- tares certified and number of chain of custody certificates awarded; with difficulty one may be able to esti- mate the amount of harvested wood product from public documents, but in no case does any institution monitor the amount of verified / certified wood product is traded on the international market.

For companies interested in adequate social due diligence, the lesson learned from this experience is that all companies and their investors need to proactively investigate land rights and ongoing land-related conflicts. They cannot assume that local rights and interests are being protected, or that the laws are being followed, just be- cause local governments are involved. The use of a local government company to acquire the land is not appro- priate, because Chinese laws require rural land transfers be conducted between the individual transferring the land and the purchaser through a negotiation that is free of duress. Standards of corporate social responsibility need to be strengthened when it comes to land.

It should be noted that not alone in confronting inappropriate land grabs. The pressure to ignore land rights is likely to grow worldwide as demand for land (for agricultural, forest or even carbon emission reductions) in- creases. As in many countries in Asia where land is at a premium, the allocation of land for economic land conces- sions (including plantations) often raises questions about how local communities have been engaged, processes for free and prior informed consent, and long-term benefits for these communities.

5.3.4 Implementing Due Diligence Systems

China’s wood industry has concerns over conducting due diligence requirements demanded by North American and European markets, and experience difficulties in verifying materials sources from both the technical and economic aspects. Complex and sometimes broken chains of custody are common for many mills. Management costs incurred with legality verification could further lower industry’s profits which al- ready low. There is lack of a national timber legality verification scheme even for domestic timber, although China implements its own documentation process (harvesting license, transport license and processing li- cense) to ensure timber legality. For imported timber, virtually none of China’s major supply partners have nationally implemented third-party legal verification standards, and those wishing to comply with interna- tional due diligence requirements must source from certified standards such as FSC, PEFC, etc.

It is expected that as a critical mass of Chinese producers, manufacturers and traders implement verification or certification schemes, economies of scale will make it easier for additional players to enter this field. As more companies become certified,

 the ease with which a new company can find certified suppliers increases, reducing the need for each company to work through its entire supply chain by itself;

 there is an increase in the availability of competent consultants to support implementation of sys- tems, software and other systems which deliver certification requirements adapted to the national context, and increased ability of trade associations to provide assistance; and

 the number of auditors and certification bodies available increases, resulting in greater flexibility and lower costs.

Similarly, national tracking or licensing systems that could be applied to all exports can become associated with positive branding: 'always legal' timber. Buyers and sellers would have the opportunity to both reduce their transaction costs and demand higher prices through association with the ‘legal brand.’ Such national systems would help to reduce transaction costs, as it would reduce the need to independently audit the supply chain to satisfy importers and retailers.

In addition, the complex systems of domestic markets, historically geographically isolated and with poor communication networks, are already beginning to organize into more efficient distribution channels. In late 2009, plans for the Chengdu Furniture Industrial Zone and a Timber Industry Zone in the Lashan area were announced – both massive timber, furniture wholesale and distribution points. The Lashan industry zone would include wood based panel and lumber production projects, timber logistics, storage facilities and financial services. Likewise, the government of Nanxun City in Zhejiang Province has development plans for a wood flooring industrial park, including centers for products marketing, research and design, logistics, financial services and information centers.

These industrial parks and centers are likely a trend towards a consolidation of the wood products industry through-out China18_{, and could facilitate the dissemination of information about international market de-} mands, supply chain tracking and general monitoring abilities.

18 _{The government of Nanxun City, for example, expects that sales of large scale enterprises (annual output value over}

RMB5 million) will reach RMB20 billion by 2012 and RMB40 billion by 2015, which would be 3.5 times over the 2009 level. Currently, there are more than 400 enterprises out of which 23 enterprises have annual sales over RMB100 million (ITTO MIS, December 2010).